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Unformatted text preview: 3 The BlackScholes Formulas (See page 299300) 4 T d T T r K S d T T r K S d d N S d N e K p d N e K d N S c rT rT σ= σ σ+ = σ σ + + ===1 2 1 1 2 2 1 ) 2 / 2 ( ) / ln( ) 2 / 2 ( ) / ln( ) ( ) ( ) ( ) ( where The N ( x ) Function • N ( x ) is the probability that a normally distributed variable with a mean of zero and a standard deviation of 1 is less than x • See tables at the end of the book 5 Properties of BlackScholes Formula • As S becomes very large c tends to S – KerT and p tends to zero • As S becomes very small c tends to zero and p tends to KerT – S • Notice that the formula includes 5 of 6 fundamental determinants of option value. – S, K, r, T, σ • Missing dividends 6...
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 Spring '12
 LucyAckert
 Statistics, Standard Deviation, Volatility, Stochastic volatility, historical volatility

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